Shares of mortgage insurers MGIC Investment Corp. and Radian Group Inc. fell sharply in after-hours trading Monday on news they would likely have to write down most or even all of their $1.03 billion joint venture, Credit-Based Asset Servicing and Securitization LLC [C-BASS], which aims to buy mortgages with overdue payments and improve the collection rates before reselling the debts at a profit. The companies, which agreed to merge in February, saw their shares fall 2.26% [MGIC] and 3.18% [Radian] during regular trading yesterday, amid widespread market gains. Shares tanked after hours as news of the probable writedown broke at 6 p.m. ET. By the time trading came to a halt, MGIC's and Radian's shares were down 11.97% and 7.96% respectively. During the first quarter, MGIC saw its net income fall by 43%, on mortgage-based losses of $181.8 million (see full summary), while profits fell 49% in the recent-ended quarter. Radian, meanwhile, has seen its shares fall for 12 consecutive days, and 40% since announcing the merger with MGIC. Radian said sales of traditional mortgage insurance jumped 60% in Q2 to $10.64 billion, adding to investor concerns it will bear the brunt of further fallout in the U.S. housing market. The companies say the merger is moving forward as planned.
Sources: Press Release I, II, Bloomberg, Reuters, Philadelphia Inquirer
Commentary: MGIC's Q1 Earnings Miss, Losses Jump, but Delinquencies Slightly Lower • Radian: MGIC Merger Looks Promising • MGIC Investment Corp. to Buy Radian for $4.9 Billion in Stock
Stocks/ETFs to watch: MTG, RDN. Competitors: PMI, GNW, TGIC, AGO, BCIS
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